Does the Patriot Act dip too far into your financial life?

Area banks mixed to new security regulations

Posted: Sunday, October 05, 2003

By Don Nelsondon.nelson@onlineathens.com

Individuals and companies applying for loans should be prepared to share a little more personal information to confirm their identities under federal Patriot Act guidelines that took effect this past week.

In most cases, banks are asking for government-issued identification that includes a name, date of birth, address and identification number such as a taxpayer identification number for citizens, or a government-issued document for non-citizens. It sometimes takes several documents to validate information now, where a driver's license once sufficed.

''The basic requirement says we need to know who we are doing business with,'' said Bobby Heath, president of First American Bank & Trust in Athens. ''And that we did due diligence in checking. The law makes good sense ... the burden is doing the paperwork.''

The stated purpose of the regulations, approved two months after the Sept. 11, 2001 attacks, is to curtail money laundering and terrorist financing. The law took effect Oct. 1 and places a greater burden and liability on banks and other financial institutions that provide loans. Besides gathering more detailed information on a client's identity, lending institutions also must make sure the clients are not on any watch list.

Additionally, the banks must keep records of the information and maintain for five years a database on loan customers, whether they were approved for the loan or not.

Heath said the law allows institutions to establish their own policies for getting and maintaining identifications, but it mandates that banks verify that the information was requested and obtained.

How banks go about getting to know their customers can range from collecting an employer's address to assessing the client's tax status. Other items may include investigating sources of a customer's funds, looking into other accounts linked to that person and asking for what purpose a client intends to use funds.

Jeff Bishop, branch manager for Synovus Mortgage in Athens said his company made adjustments to its computer systems to accommodate the changes.

''We had to reinvent our loan origination software,'' he said. ''We had to add something in it that will not only prompt the loan officers to gather the information but also to capture the database we are required to keep on our customers for five years.''

Donna Stallings, owner of Bankers Equity, an Athens branch of AmTrust Mortgage, said the Patriot Act won't really cause her business any inconvenience.

''Getting customer (identification) is an important part of the industry anyway,'' she explained. ''Putting a formal policy into place is really not going to cost me any money.''

Stallings said she has routinely kept records on all her clients, and Georgia law already requires her mortgage bank to maintain them for five years.

''I don't throw any file away, whether it closes, is withdrawn or denied,'' she said. ''If they want me to keep it for five years, they will come in on the sixth year, so I just keep it.''

According to a recent story from the South Florida Sun-Sentinel, some smaller community banks are having to allocate a greater portion of their budgets than larger banks to comply.

The task is estimated to cost some small banks as much as 20 percent of profits, and it is time-consuming, according to experts and local bankers, who use documents from tax returns to utility bills to verify clients' identities. Some bankers even travel across borders to confirm that a client's business really exists.

''We're running into some resistance,'' said R. Moyle Fritz Jr., CFO. ''Most of the customers have heard of the Patriot Act, but they're not really aware of how it's going to impact them.''

Fritz estimates the bank has spent about $150,000 to $200,000 this year on software, new personnel and training to comply with the new rules.

Many other banks have complained that the new rules have strained relationships with longtime customers, according to initial results of a study by Florida Atlantic University professor David Wernick on the effects of post-Sept. 11 security on the South Florida economy.

''The due diligence is significantly greater, and a lot of the customers resent being put through the third degree, especially if they've been with the bank for a while,'' Wernick said. Some customers, especially those from abroad, may take their business to other countries.

In Athens, Heath agreed that customers will see they will have to provide more documentation rather than less. He said that because lending officers already get so much information on a client during the loan process, some customers might feel like it is overkill to ask for a driver's license.

Bishop, the Synovus Mortgage branch manager in Athens, personally feels that the new regulations are intrusive, and he said he tried to contact Sen. Zell Miller, D-Ga., to express those sentiments.

''I thought it was an invasion of privacy,'' he said. ''It's the nature of it I have a problem with. We're maintaining a database for law enforcement.''

From Bishop's perspective, banks loans would not be the likely avenues through which terrorists would attempt to launder money.

He said banks are often limited to certain amounts they can lend. Mortgage lenders such as Fannie Mae and Freddie Mac, for example, won't loan more than $322,700. Terrorists, Bishop asserts, typically deal with tens of millions of dollars.

''They would have to do a lot of conventional loans to launder mass amounts of money,'' he stated.

Another of Bishop's concerns involves the penalties associated with the law.

''It's probably the highest penalty of any regulation we've got in the industry,'' he said. ''The penalty can be up to $10 million per violation for the (banking) corporation and up to $5 million to the individual who didn't gather the information. Jail time is for up to 30 years.''